Ask us how: Insuring Your Business

Posted by Michael Derin
Published on October 16, 2013 under NSW Business Chamber Partnership

Starting a business is all about possibilities, optimism, and promise. But it should also be a time for ensuring protection and security. And that makes a comprehensive package of insurance essential for all small businesses.

Policies can protect your property in the case of accidental damage and also protect your mortgage if you have one. You can also be protected if your business is interrupted by events beyond your control. Small business insurance can also include cover damage to glass and signs as well as theft of property or money from the business.

WHAT IS BUSINESS INSURANCE?

The term "business insurance" encompasses all the different types of coverage available to protect business owners from losses. Through business insurance, you can cover your property and business vehicles, insure against legal claims against the business such as liability or workers' compensation, and also provide health insurance for your employees, among other things.

WHY DO I NEED BUSINESS INSURANCE?

Even if you don't think your business has enough assets to be sued, or if you believe because your business in incorporated, you're shielded from personal liability through the so-called "corporate veil," you still need business insurance. Why?

Because absolutely anyone can be sued, judgments can be collected through wage garnishments and bank account seizures, and even corporate veils can be pierced under certain circumstances; indeed, the smaller your business is, the more likely that you can be held personally liable for debts through your personal assets.

Your business needs business insurance because of the many risks and potential threats to its successful and continued operation; good, tailored business insurance policies can help protect you and your venture as much as possible.

WHAT TYPES OF BUSINESS INSURANCE ARE AVAILABLE?

The main types of business insurance you should consider include:

• Building and contents insurance (including fire and flood);
• Public liability insurance;
• Product liability insurance;
• Equipment insurance (including protection against IT failures);
• Legal expenses insurance for facing court proceedings;
• Health and life insurance for the owner;
• Key man insurance;
• Income protection insurance;
• Business interruption insurance;
• Transit insurance for goods;
• Travel insurance for business trips;
• Credit insurance for unpaid debts;
• Industrial special risk (ISR) insurance; and,
• Workers’ compensation.

We’ll look at some of these types of insurance in more detail:

We’ll look at some of these types of insurance in more detail:

PUBLIC LIABILITY INSURANCE

This covers legal liability for injury to members of the public and damage to property arising from the business’s activities. It also covers economic loss arising from your negligence. Your liability from a successful public liability claim could be enormous and threaten your company’s survival and, if you are a sole trader, your personal finances and assets. This is one of the most essential types of insurance for any small business.

EQUIPMENT INSURANCE (INCLUDING PROTECTING AGAINST IT FAILURES)

This covers loss or damage to machinery or equipment as a result of a breakdown. You can also insure against the loss of food due to spoilage following a breakdown.

KEY MAN INSURANCE

The most important asset of a small business is the owner, and key man insurance (it is also sometimes known as the sexist key person insurance) protects the company (not the owner) from the loss of a key person within the business and the impact of this upon profitability.

In partnerships, key man insurance protects each partner. Upon the death of a firm’s partner the other partner(s) usually need to purchase the shares of the business from the deceased’s family. Insurance lets this be handled smoothly with the correct buy-sell agreements in place.

INCOME PROTECTION INSURANCE

If someone is unable to work, income protection insurance protects them by paying their salaries. Many business partnerships make it part of the partnership agreement that all the partners have income protection insurance. This is because the partners share the firm’s profits, and having income protection insurance in place for a partner who is unable to work means that profits are not diluted by the non-working partner drawing a salary from the business.

BUSINESS INTERRUPTION INSURANCE

This provides cover for loss of income, payroll and an increase in costs following a reduction in turnover or revenue caused by fire damage.

WORKERS’ COMPENSATION

Businesses with staff also need to register with Work Cover, statutory and state-based authorities that govern workers’ compensation.

HOW DO I BUY BUSINESS INSURANCE?

In order to buy business insurance, you will go through an insurance professional, either a broker (usually for larger companies) or an agent—and you should choose carefully. Recommendations from your local chamber of commerce or other businesspeople you trust should certainly be welcome.

The best way for you to prepare to make an informed decision about choosing an insurance professional is to know exactly what your business does (and doesn't do) as well as its future direction; then find out a bit about the types of coverage you think might be helpful in your line of work before going and talking to your insurance professional.

Choose an insurance professional who is licensed and doesn't have a record of ethical or administrative discipline procedures, and make sure he or she understands your type of business and the risks it incurs. Then be ready to have an open and forthcoming dialogue about what you want insurance to cover.